Unlike proprietorships and partnerships, private limited companies enjoy certain exemptions and privileges, which are peculiar to their constitution and nature. A private limited company is variously described as, ëquasi-partnershipí, ëfamily concerní, ëclose corporationí etc. A private limited company also has many advantages over proprietorships and partnerships, as elaborated below.
1. Limited Liability
First and foremost benefit of trading/doing business via a private limited company has always been the limited liability conferred upon the company's directors and shareholders. As a sole trader or partnershipbusiness,personalassetsofthe proprietor or partners can be at risk in the event of a failure of the business, but this is not the case for a Private limited company. As long as the business is operated legally, directorsí or shareholdersí personal assets are not at risk in the event of any business indebtness or winding up. The unfortunate events like business failures are not always under our own control.
If a limited company becomes insolvent and is wound up only the assets of the company are used to clear its debts. The officers of the company have no personal liabilities and are not made bankrupt and are free to incorporate another company. By contrast, if you do business as a partnership or as an individual, the creditors can claim on all your property to satisfy the debts, and if this is insufficient you may be declared bankrupt. An undercharged bankrupt is forbidden to start another business or to become a director of a Private/Public limited company. 2. Legal Entity/Status or Recognition
A private limited company is a legal entity, a juristic person established under the Act. It has its existence separate from its directors and members.
Private limited company status enables you to be taken more seriously than a...